FIN/571 QUIZ TWO (2015) 6/6 CORRECT ANSWERS

Fin/ 571 quiz 2

1- Which one of the following statements about trend analysis is NOT correct? Sole proprietorship

a-      All of these are true statements.

b-      The standard industrial classification (SIC) system is used to identify benchmark firms.

c-       This benchmark is based on a firm’s historical performance.

d-      It allows management to examine each ratio over time and determine whether the trend is good or bad for the firm.

2- Coverage ratios: sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the year is $1,434,500. What is its coverage ratio?

a-      14.5 times

b-      15.42 times

c-       None of these

d-      18.34 times

3- Multiples analysis: turner corp. had debt of $230 million and generated a net income of $ 121 million in the last fiscal year. In attempting to determine the total value of the firm, an investor identified a similar firm in Jacob’s Inc., an all –equity firm. This firm had 150 million shares outstanding, a share price of $14.25, and net income of $182 million. What is the total value of Turner Corp? Round to the nearest million dollars

a-      $1,421 million

b-      $1,715 million

c-       $1,191 million

d-      $1,651 million

4- Coverage ratios, like times interest earned and cash coverage ratio, allow

a-      Afirm’s management to assess how well they meet short-term liabilities.

b-      A firm’s shareholders to assess how well the firm will meet its short-term liabilities.

c-       A firm’s creditors to assess how well the firm will meet its short-term liabilities other than interest expense.

d-      A firm’s creditors to assess how well the firm will meet its interest obligations.

5- Peer group analysis can be performed by

a-      Management choosing a set of firms that are similar in size or sales, or who compete in the same market.

b-      Using the average ratios of this peer group which would then be used as the benchmark.

c-       Identifying firms in the same industry that are grouped by size, sales, and product lines, in order to establish benchmark ratios.

d-      Only a and b relate to peer group analysis.

6- Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $ 3,436,812, what is its level of receivables?

a-      $ 81,234

b-      $ 881,234

c-       $ 13,403,567

d-      $1,340,357